VBCE Weekly Foreign Exchange Wrap Up for May 29 - June 2 , 2017

Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca

USDCAD opened near 5 week lows but further downside was limited to just 18 pips coming during Monday's holiday session. The pairing pushed higher over the balance of the week although gains were limited to 1.3547 despite a 7% decline in oil prices. The CAD was caught between lower oil prices and a broadly weaker USD due to falling yields (10 year yields hit a 7 month low – down nearly 0.50% from March highs) amidst a string of weaker than expected economic data. Although U.S. June Fed rate hike expectations (increase to 1.25%) are essentially a lock, longer term rate hike expectations have diminished. Global equity markets moved higher for the most part with U.S. indices reaching record highs. The EURO continues to perform well having risen to 16 month highs vs the CAD and 9 month highs vs the USD. The next European Central Bank policy announcement is on Thursday, June 8^th. While interest rates are expected to remain near 0, the bond buying program (quantitative easing) could be tapered.

Themes for the week:

*CAD lags – worst performing currency this week (was the top performer last week)

*USDCAD bearish trend stalls / trades with a more neutral bias after 4 consecutive lower weekly closes

*U.S. backs out of Paris Climate Accord – sends oil prices lower by as much a 7% (from $50.08 down to $46.77 / closes week at $47.71)

*Canada GDP(Mar) 0.5% (exp 0.2%/prev 0%) Q1 annualized 3.7%(exp 3.9%/prev 2.7%)

*Canada trade balance: -$0.37 billion (exp -$0.07 billion / prev -$0.94 billion)

*U.S. non-farm payrolls: 138,000 (exp 185,000 / prev 174,000 *revised from 211,000)

*U.S. unemployment rate: 4.3% (exp 4.4% / prev 4.4%)

*U.S. average hourly earnings: 0.2% (exp 0.2% / prev 0.2%)

*U.S. trade balance: -$47.6 billion (exp -$46.1 billion / prev -$45.3 billion)

*U.S. June rate hike probability rises to 92.3%

*U.S. 10 year yields fall to 7 month lows near 2.15% (2017 high was 2.62% in March)

On Tap for Next week:

Tues. June 6: Australia (RBA) interest rate decision: exp unchanged @ 1.50%

Thurs. June 8: European (ECB) interest rate decision: exp unchanged @ 0%

Fri. June 9: Canada net employment change: exp 11,000 / prev 3,200

Canada unemployment rate: exp 6.6% / prev 6.5%

Technically, downside momentum stalled last week as USDCAD traded with a more neutral bias. The pairing was unable re-test the prior week low of 1.3388 (low was 1.3429) while also failing to break the prior high of 1.3547. Although U.S. data was fairly weak for the most part, oil prices saw a steady decline; as much as 7% before recovering 2% on Friday. A sustained break below 1.3429 or above 1.3547 will be required to generate a shift in trend.

Topside targets to consider: 1.3500, 1.3547, 1.3575, 1.3600

Downside targets to consider: 1.3470, 1.3430, 1.3388, 1.3325